Lockheed’s F-35 Costs Rose 64% Over Decade in ‘Rich Man’s World’

Lockheed Martin Corp. (LMT) won the F-35
Joint Strike Fighter program in the wake of the Sept. 11, 2001,
attacks when U.S. B-52 bombers were pummeling the Taliban and
Pentagon spending was unleashed.

Ten years and $66 billion later, the aircraft is still in
development, five years behind schedule and 64 percent over cost
estimates. The Obama administration may cancel some models and
also cut the Pentagon’s orders.

The plane, envisioned as the affordable stealth fighter for
the U.S. and allies, has turned into a budget target.

“I’d blame the program’s setbacks on the fact that we
lived in a rich man’s world,” said Jacques Gansler, a former
Pentagon chief weapons buyer in the Clinton administration and
now a professor at the University of Maryland at College Park.
“There has been less emphasis on cost over the past 10 years,”
he said.

During that decade, the F-35 cost rose along with the
Pentagon’s overall budget for developing and buying new weapons,
which increased 62 percent to $208 billion in 2011 from $128
billion in 2001. The jet has been bedeviled by a costly
redesign, faulty cost estimates, fluctuating order quantities,
and infrastructure built on assumptions of rapid production.

Even so, the plane has not failed or faced crippling
technical problems in flight tests, and Lockheed says the jets
are meeting test goals. Last month, the Marine Corps version,
the most complex variant, demonstrated the first short takeoff
and vertical landing on a ship.

Variants

Still, Army General Martin Dempsey, chairman of the Joint
Chiefs of Staff, said last month the U.S. may not be able to
afford three variants, for the Air Force, Navy aircraft
carriers, and the Marine Corps.

Former Defense Secretary Donald Rumsfeld hailed the F-35 as
a transformational family of airplanes for the U.S. and its
allies in three variants built off a common chassis and assembly
line. The jet would be the “world’s premier strike platform
beginning in 2008,” said Pete Aldridge, the then-top U.S.
weapons buyer, said in October 2001, at a Pentagon news
conference.

Yet the program has been delayed by five years, and
development costs have grown 64 percent to $56.4 billion since
the program’s inception, according to data from the U.S.
Government Accountability Office. The overall cost, including
procurement of about 2,400 U.S. aircraft, has risen to $382.5
billion, according to an independent estimate by the
congressionally mandated Cost Assessment and Program Evaluation
office.

The Pentagon’s Joint Program Office led by Vice Admiral
David Venlet, who oversees the JSF program, declined to comment
for this article.

‘Affordable’ Stealth Jet

The idea of a common platform, affordable stealth jet for
the Air Force and Navy took root in 1993, as the Air Force
looked ahead to replacing its Lockheed F-16s and the Navy toward
a successor for the Boeing Co (BA).-built F-18s. The Pentagon in 1996
chose Boeing Co. and Lockheed to start design work.

Then-Pentagon weapons chief Paul Kaminski said cost was
“an independent variable” -- an imperative in addition to the
plane’s capabilities.

That focus on cost was lost early along the way, said
retired Air Force General George Muellner, who managed the early
stages of the JSF’s concept development.

The goal of producing the Marine Corps’ short-takeoff and
vertical-landing, or STOVL, model -- the most complex
configuration -- was “supposed to be several years behind” the
Air Force’s simpler, lighter model, said Muellner, a former
Vietnam combat pilot who worked at Boeing for 10 years after
leaving the Air Force and retired in 2008.

‘Burn Rate’

Instead, after the Marines lobbied to have their model go
first, the Pentagon in 2003 asked Lockheed to begin work on that
jet. It also sought more software capabilities in earlier
versions of the plane than originally planned, Muellner said.

That meant more people working at Lockheed’s plant,
“increasing the burn rate per day” and stacking technical and
program risks on “top of each other.”

Retired Air Force General Merrill “Tony” McPeak, who was
the service’s chief when the program began, said creating a
Marine Corps version cost a lot, for little gained.

“A lot of design compromises were made especially to give
the Marine Corps the STOVL capability which, by the way, they’ve
never used in combat,” he said. “And who says the Marines need
a fast jet in combat?” said McPeak, now chairman of Ethicspoint
Inc., a consulting firm in Lake Oswego, Oregon.

Tom Burbage, a former Navy pilot who led Lockheed’s JSF
team, was at the company’s Fort Worth, Texas plant on Oct. 26,
2001, when the Pentagon picked the company’s proposal over
Boeing’s.

‘Long Program’

“We all knew it’d be a long program and it’d be a
challenge to get all the development done,” Burbage, now
Lockheed’s executive vice president for the F-35 program, said
in an interview. “But I think we’re definitely behind” by a
few years compared with the 2001 plan, he said.

At the start, development costs were estimated at about
$34.4 billion and overall program acquisition was $233 billion,
according to the GAO. Within a year, the Navy decided it needed
fewer of the aircraft-carrier model and cut its requirement by
409 jets, reducing the total U.S. order to 2,457 from 2,866.

Lockheed, meanwhile, expanded its engineering team in the
first year to accommodate the seven countries that signed up as
partners, in addition to the U.S. and the U.K., which began the
program, Burbage said. These included Australia, Turkey, Italy,
the Netherlands, Canada, Denmark and Norway, and the aerospace
industry in each country is a supplier to the program.

Current plans project 400 airplanes on order by 2016,
whereas Lockheed now has contracts for 98 jets and is
negotiating for the next production lot, he said.

In 2003, estimates based on the Air Force designs showed
that the Marine Corps version may “miss the weight
projections,” and the Pentagon called for advancing work on the
Marine plane and using that to improve the design on the two
other models, Burbage said. The Marine jet needed to shed about
3,000 pounds, he said.

In April 2004, the company “stopped, shut down our supply
chain and went into an 18-month design phase” resulting in a
complete redesign of the jet’s wings, Burbage said.

Remedial Work

“After two-plus years designing a plane, building staff,
and reaching a spend rate of $300 million a month, going back
and doing remedial work on STOVL was extremely punitive to the
program,” said John Young, the Pentagon’s top weapons buyer in
the Bush administration. That, he said, “eliminated any hope of
developing three planes for the cost of one.”

The program required a new “bill of materials, brand new
parts and starting some new suppliers,” Burbage said.
Development costs rose 30 percent to $44.8 billion and projected
overall cost to $244.8 billion.

That kind of upheaval was avoidable, had Boeing and
Lockheed been asked to fly prototypes of their designs instead
of “proof of principle demonstrators,” said Young, now head of
JY Strategies LLC, an Arlington, Virginia-based consulting firm.

In 2007, the Pentagon under Young’s direction ordered a
“midcourse risk reduction.” That move cut back test planes and
testing regimen to save money, Michael Sullivan, director of
acquisition and sourcing management at the Government
Accountability Office said in an e-mail. Still, overall costs
rose another 13.7 percent to $278.5 billion.

Fresh Estimates

In 2009, after President Barack Obama’s administration took
office, fresh estimates found that the average procurement unit
cost of the plane had increased 58 percent, to $79 million in
2002 dollars, triggering another restructure of the program,
according to the GAO.

The Pentagon in June 2010 estimated the program’s total
cost to be about $382 billion, taking into account an extension
of development phase of the program, additional tests and
delayed production.

Program officials were “aware of these risks as early as
2001, but chose to accept optimistic assumptions,” Sullivan
said. The promise of an affordable jet was “miscalculated.”

In 2010, then Defense Secretary Robert Gates withheld $614
million from Lockheed and tied it to specific goals. He also put
the Marine variant on probation for two years to improve the
plane’s reliability.

More Testing

Last year’s restructuring added about 2,200 more test
flights and as many as 10,000 test points, Burbage said. The
additional time for tests may influence lawmakers and defense
officials into thinking “we shouldn’t build more planes in
higher quantities until I get that testing done,” Burbage said.

The restructure and subsequent tests have shown “no major
or insurmountable technical problems,” Vice Admiral Mark
Skinner, the Navy’s top procurement officer told Congress
yesterday. Lockheed was ahead by 9 percent on its test goals,
Burbage said. Since tests began in December 2006, all three
variants had flown 1,412 times, he said.

Now, the program is heading into a global budget storm,
which adds uncertainty to the order outlook as lawmakers and
officials in the U.S. and allied nations seek to cut spending.

“We do now have a family of three airplanes that are
unique and highly capable,” Burbage said. “Our biggest
challenge now moves from the technical to the political.”